Business Law

OBJECTS CLAUSE

Objects Clause

A company’s constitution can adopt an objects clause. An objects clause specifies the activities that a company can undertake. The Corporations Act 2001 (Cth) only requires mining companies that are “no liability” companies to have an objects clause s112. However any other company may elect to include an objects clause in its constitution if it so chooses s125.

Prior to 1984, all companies were required to have an objects clause in their constitution. From 1984 this requirement has been optional.

Legal capacity and powers of a Company

Since 1984, a company’s legal capacity has been widened to that of an "individual" (a natural person).

Section 124

It should be noted that despite the presence of an objects clause, a company still has the complete legal capacity and powers of an individual s124.

Abolition of doctrine of ultra vires

Under common law, when a company acts outside its objects clause, ie. outside the powers implied to carry out its objects or those granted by statute, that act is held to be ultra vires and void ab initio Ashbury Railway Carriage & Iron Co v Riche.

The strict application of the doctrine of ultra vires led to commercially unrealistic outcomes. Companies could enter into contracts beyond their powers and then later avoid their obligations on the grounds that they had no legal capacity and the contract was of no legal effect. The doctrine of ultra vires has been abolished by granting companies the legal capacity of an individual s124. Thus, to assess whether a company has legal capacity, it is simply a matter of comparison with a natural person.

If a company does have an objects clause, s125(2) states that the act of the company is not invalid merely because the act undertaken by the company is contrary to the objects clause. This would be the position even if the outsider had actual knowledge that the company is acting contrary to the objects...